Wondering How Islamic Finance Works? Read This Blog

We get people asking us what Islamic Finance is all about.  Of course, we’re always happy to answer their questions. After all, IjaraCDC prides itself on being an informational resource too. We are a Michigan nonprofit corporation that specializes in sharia structuring.

A well informed client is our best customer. That’s why we thought it would be a good idea to write this blog. It should give anyone reading it a good idea of what Islamic finance is about.

First off, you should know this is a relatively new way of doing business. The first Islamic bank was opened in 1963. The growth of these sharia compliant products was steady over the years. In 2004, the first Islamic finance bank in the West was established in Britain.

Islamic Finance: The Big Picture

There is a difference between Islamic finance and more traditional products. Sharia compliance is a system that dictates how Muslims should act in political, economic and social matters. At the center of sharia compliance is the idea that Allah owns all wealth.

In other words, human beings cannot do certain things with money. Here are a few of the ideas Muslims must work with.

• Interest is Outlawed. Sharia compliance means riba isn’t allowed. In fact, it’s the word for interest. Here’s a quick way to decide if riba is involved in a transaction. Check to see if the person who lends the money gets a return without any kind of effort. If the person borrowing the cash carries all the risk, that’s generally a good indicator too.  
• Uncertainty and Islamic Finance Don’t Mix.  This is where the word Gharar comes in.Any kind of Islamic finance transaction that’s not clear falls under this heading. In the West, transparency is the opposite to Gharar. Technically, this Arabic word means to delude or cheat.
• Some Prohibited Industries. There are certain industries Islamic finance avoids. Gambling as well as prostitution and pornography are several examples. Generally, Islamic finance prohibits anything that’s considered harmful to society.

Basic Investment Tools

Beyond an ijara mortgage, there are some sharia compliant investment tools. Some of these might be surprising if you’ve never come across them before.

For example, some people might be surprised to find out that equities are all allowed under sharia law. In fact, Muslims can invest in companies shares or common stock as long as they’re not involved in prohibited industries.

There are other common investments that need to be handled more carefully. For example, retirement investments can’t include Riba. However, there are certain types of real estate that stay within the boundaries of sharia law.

Islamic finance has a long history behind it. Its ethical principles are even drawing interest from non-Muslim investors. We are always available to help you by answering all of your questions. Getting in touch with us is simple through our website.

Our number one goal is to be your informational resource about Islamic finance. Why not get in touch with us today so we can start building a relationship?